Bitcoin is no longer the main strategy of this company, nor of those emerging Bitcoin treasury companies; you are.
It has been six months since the company, formerly known as MicroStrategy (now renamed Strategy), reported. Besides changing its name, the company has also expanded the types of financial products it offers, further accumulated Bitcoin, and prompted many companies to imitate Michael Saylor’s strategic model. Today, Bitcoin reserve companies seem to be everywhere.
It’s time for an update. We will examine whether the operations of these Bitcoin reserve companies align with the predictions in the initial report and once again attempt to summarize where all this will ultimately lead.
Alarm Bells Ringing
Last December, this company seemed almost invincible: its Bitcoin profit key performance indicators (KPIs) accumulated at an incredible annual growth rate exceeding 60%, with optimism running high. No wonder most of the arguments meticulously articulated in the report released at that time were either ridiculed, ignored, or maliciously challenged, demanding to short the stock. The stock price, measured in dollars or Bitcoin, has remained basically flat compared to that time, currently providing almost no evidence to support the predictions.
Unfortunately, few understand or even realize the most important conclusion in my report from last December — it involves the source of Bitcoin profits. Therefore, we will reiterate the problems with this metric in the company and why it should alert any serious investor.
Bitcoin profits — that is, the increase of Bitcoin per share — actually flow from the pockets of new shareholders to old shareholders.
Many new shareholders buy stocks hoping to also obtain high Bitcoin profits, but these profits either directly come from the company’s record-breaking ATM (At Market) issuance to purchase Strategy ordinary shares or indirectly from buying stocks borrowed from neutral hedge funds that hold the company’s convertible bonds (which are then sold). This is precisely the Ponzi aspect of the company's operations — publicly boasting of Bitcoin profits far exceeding any traditional returns, while masking the fact that these profits do not stem from the sale of the company's goods or services, but rather from new investors themselves. They are the source of the profits, and the harvesting of their hard-earned money will continue as long as they are willing to provide funds. The scale of this harvesting is proportional to the degree of confusion, which can be measured by the premium of ordinary shares compared to the company’s net asset value. This premium is cultivated and maintained through complex yet enticing company narratives, promises, and financial products.
Since the term ‘Ponzi scheme’ has been frequently used over the past decade to attack the Bitcoin space, many Bitcoin enthusiasts have become accustomed to — and have reason to — completely ignore such criticisms.
But it needs to be clarified that even if a company within the Bitcoin space intentionally or unintentionally builds a Ponzi scheme, it does not mean that Bitcoin itself is a Ponzi scheme. The two are independent assets. Ponzi schemes also existed in the past when metals served as a currency standard, but that does not mean that precious metals themselves were or are Ponzi schemes. When I make this accusation against Strategy at this stage, I am doing so from a definitional perspective and not out of boring exaggeration.
Accumulation is still ongoing
Before drawing further conclusions, we need to review the content of the initial report and outline the relevant decisions made by the company over the past six months.
On December 9 of last year, Strategy announced the purchase of approximately 21,550 Bitcoins at an estimated price of $2.155 billion (an average price of about $98,783 per Bitcoin). This purchase was made using funds raised through the famous ‘21/21 Plan’ ATM (At Market) issuance initiated earlier that same year. Just a few days later, the company purchased over 15,000 Bitcoins through ATM issuance, and then announced the further purchase of approximately 5,000 more Bitcoins.
By the end of 2024, the company submitted a proposal to shareholders to increase the authorized share quantity of Class A common stock from 330 million shares to 10.33 billion shares — an increase of 30 times. Meanwhile, the authorized share quantity of preferred stock also increased from 5 million shares to 1.005 billion shares — an increase of 200 times. Although this is not equivalent to the total number issued, this move provides greater flexibility for the company's future financial operations, as the ‘21/21 Plan’ is rapidly approaching its end. By the end of 2024, Strategy held approximately 446,000 Bitcoins, with a Bitcoin yield of 74.3%.
Permanent Preferred Shares
At the beginning of the new year, Strategy submitted an 8-K filing indicating that it was ready to seek a new round of financing through preferred shares. This new type of financial instrument, as its name suggests, will take precedence over the company’s ordinary shares, meaning that preferred shareholders have a stronger claim to future cash flows.
The initially set financing target was $2 billion. As of January 12, the company had accumulated 450,000 Bitcoins during the preparation of the new tools. By the end of the month, the company requested the redemption of all convertible bonds due in 2027 and opted for exchange with newly issued shares, as the conversion price had fallen below the market price of the shares. For those 'deeply profitable' Strategy convertible bonds, the largest buyers — funds engaging in gamma trading and neutral hedging — usually choose to convert early and then issue new convertible bonds rather than hold old bonds until maturity.
On January 25, 2025, the company finally submitted the prospectus for Strike Permanent Preferred Shares ($STRK). A week later, approximately 7.3 million shares of Strike were issued, stipulating an accumulated dividend of 8% with a liquidation preference of $100 per share. In effect, this means that a dividend of $2 per share will be paid quarterly indefinitely, or will stop being paid when the Strike shares are converted to Strategy shares (when the latter's price reaches $1,000). The conversion ratio is defined as 10:1, meaning every 10 shares of Strike can be converted into 1 share of Strategy. In other words, this instrument is similar to a permanent call option that pays dividends, linked to Strategy ordinary shares. If necessary, Strategy can choose to pay dividends in the form of its ordinary shares. By February 10, the company used the proceeds from the Strike issuance and the ordinary share ATM issuance to purchase approximately 7,600 Bitcoins.
On February 21, Strategy issued $2 billion in convertible bonds, with a maturity date of March 1, 2030, and a conversion price of approximately $433 per share, with a conversion premium of about 35%. Through this financing, the company can quickly purchase about 20,000 Bitcoins. Soon after, the company released a new prospectus, allowing for the issuance of up to $21 billion in Strike permanent preferred shares, indicating that the previously ambitious ‘21/21 Plan’ seems to be evolving into a larger-scale new plan.
The disputes and pace of permanent preferred stocks: the emergence of Strife and Stride
After the company publicly announced its ambitious financing plan expansion, another new tool was launched — a permanent preferred share named Strife ($STRF). Similar to Strike, Strife plans to issue 5 million shares, offering a 10% annual cash dividend — paid quarterly — rather than the 8% cash or ordinary share dividend of Strike. Unlike Strike, Strife does not feature an equity conversion function but has a higher priority than ordinary shares and Strike. Any delayed dividends will be compensated through future higher dividends, with a total annual dividend rate of up to 18%. At issuance, the initially planned 5 million shares seemed to increase to 8.5 million shares, raising over $700 million. Through ordinary shares and Strike’s ATM issuance activities, Strategy finally announced in March that its Bitcoin holdings exceeded 500,000 Bitcoins. The regular ATM activities primarily focused on ordinary shares in April until this financing method was nearly exhausted. Strike’s ATM activities also continued, but due to potentially lower liquidity, the amount of funds raised was negligible. Through these funds, Strategy's total Bitcoin holdings surpassed 550,000 Bitcoins.
On May 1, Strategy announced plans to initiate another $21 billion ordinary share ATM issuance. This announcement came immediately after the ATM portion of the initial ‘21/21 Plan’ was exhausted, fully validating the logic articulated in the previous reports and on the X platform. Since any net asset value premium would create arbitrage opportunities for the company, management would inevitably continue issuing new shares that are overpriced relative to the underlying Bitcoin asset value in order to capture this premium. Issuance began almost immediately, allowing for the accumulation of more Bitcoin. As the fixed-income portion of the initial ‘21/21 Plan’ was expanded due to the new preferred shares, investors now face a massive ‘42/42 Plan,’ which encompasses up to $42 billion in ordinary share issuance and $42 billion in fixed-income securities issuance. May also saw the company submit a new application for a $2.1 billion Strife permanent preferred share ATM issuance to the U.S. Securities and Exchange Commission (SEC). By the end of the month, all three ATM issuances were printing shares to purchase new Bitcoin.
In early June, the company announced another new tool: Stride ($STRD), a permanent preferred stock asset similar to Strike and Strife, which is about to launch. Stride offers a 10% optional non-cumulative cash dividend and does not feature an equity conversion function, with its priority lower than all other instruments, only above ordinary shares. Initially, slightly less than 12 million shares were issued, valued at about $1 billion, paving the way for the company to add approximately 10,000 Bitcoins.
The dazzling puzzle of Bitcoin treasury companies
As the STRK, STRD, and STRF products were launched, and with the full rollout of Strategy’s ‘21/21 Plan,’ the overall picture of what has happened in the past six months should be clearer.
In the initial report, I pointed out that the main logic of the convertible bonds is not as the company claims, to provide opportunities for parts of the market that need and crave Bitcoin exposure. In reality, the buyers of the bonds are almost all funds employing neutral hedging strategies, who short Strategy's stock and thus have never truly gained Bitcoin exposure. This is nothing more than a scam. The real reason Strategy provided these securities to lenders was to create an impression of financial innovation targeting a trillion-dollar industry for retail investors while achieving further Bitcoin accumulation without diluting equity. As investors bid for ordinary shares, the disparity in net asset pricing and the opportunity for risk-free Bitcoin profits also grows proportionally. The greater the economic confusion, coupled with Michael Saylor's rhetorical skills and vivid metaphors, the greater arbitrage opportunities the company can seize.
In the past six months, by issuing three different types of permanent preferred stock securities, along with various existing convertible bonds, these complex financial products are now capable of creating an appearance of financial innovation, further driving ordinary share bidding.
At the time of writing, the trading price of the ordinary shares was nearly twice the net asset value. Given the scale and activity of the ordinary share ATM issuance, this is an incredible achievement for the company’s management. This means Strategy can buy approximately two Bitcoins for the price of one Bitcoin without risk.
In 2024, the company benefitted from the popular ‘reflexive flywheel’ theory, which posits that the more Bitcoin a company purchases, the higher its stock price will rise, thereby creating more opportunities to buy Bitcoin.
By 2025, this self-referential logic underwent a slight shift, evolving into a ‘torque’ narrative, as reflected in the company’s official description: the fixed-income gears drive the ordinary shares, while Bitcoin profits are a product of this ‘mechanical apparatus.’ However, where these profits actually come from and how they are generated seems to rarely be questioned by investors, who instead blindly celebrate this fictional dynamic.
Preferred shares are financial assets and are not bound by physical laws. As an engineer, Saylor uses these fallacious analogies to make Bitcoin profits seem like they stem from some sort of financial alchemy, which is not surprising. However, since the company has no actual revenue and no real banking business (the company borrows but does not lend), Bitcoin profits ultimately only arise from the previously mentioned Ponzi elements in the company’s business model: attracting retail investors through a carefully crafted narrative to bid up the price of ordinary shares, thus allowing the opportunity for Bitcoin profits to materialize. As for those Bitcoin profits derived from various debt instruments, they cannot yet be considered fully realized, as debts ultimately need to be repaid. Only Bitcoin profits generated from ordinary share ATM issuance are immediate and final — this is the true profit.
The bubble of Bitcoin treasury companies
Whether or not they realize that narratives cannot influence reality forever, the concept of Bitcoin profits from Strategy has spread rapidly among the management teams of many small companies globally. CEOs of various companies have witnessed insiders at Strategy accumulate immense wealth by continuously selling shares to retail investors, and thus they have begun to mimic this model. The ongoing selling behavior of insiders at Strategy can be verified by reviewing numerous Form 144 filings.
Many companies have successfully implemented this strategy, allowing management and old shareholders to profit at the expense of new shareholders. But this will eventually come to an end, and many companies that have fallen into trouble due to traditional main businesses will adopt bold Bitcoin treasury strategies, becoming the first to have to sell Bitcoin assets to repay creditors as conditions worsen. Michael Saylor himself has acknowledged that he was also in a state of despair before discovering Bitcoin.
Metaplanet once operated under the name Red Planet Japan and struggled to achieve profitability in Japan's budget hotel sector.
Before Méliuz SA desperately turned to a Bitcoin acquisition strategy, it underwent a 100:1 reverse stock split.
Vanadi Coffee SA operates five cafes and a bakery in Alicante, Spain, and was on the verge of bankruptcy, but its pivot to a Bitcoin strategy seemingly miraculously boosted its stock price.
The notorious meme stock company Trump Media & Technology has no revenue and is currently seeking billions in funding to create a Bitcoin treasury company to save its stock price, which is at a historical low.
Bluebird Mining Ventures Ltd is also in desperation — at least in terms of stock price — and recently decided to sell all of its mined gold to finance its purchase of Bitcoin as treasury assets; as of the writing of this article, its stock price has risen nearly 500% within a month.
H100 Group, a small and until recently struggling Swedish biotech company, as of the writing of this article, has provided its investors with approximately 1,500% returns in a month due to Blockstream CEO Adam Back funding the company through some type of convertible bond to support its Bitcoin treasury strategy.
There are many such examples, but I believe this illustrates the point: the companies becoming Bitcoin treasury companies are not Microsoft, Apple, or Nvidia, but rather those that are on the verge of failure with no way out. Jesse Myers, a supporter of Strategy and a direct influencer of Michael Saylor's Bitcoin valuation model, once candidly admitted:
[...] MicroStrategy, Metaplanet, and Gamestop are zombie companies. They all need to take a serious look at themselves and admit that we cannot continue along the original strategic path. We must fundamentally rethink how to create value for shareholders.
These distressed companies have turned their sights to Michael Saylor and his Strategy, believing they have found a clear path to wealth. By mimicking this so-called financial alchemy, they are now embroiled in a massive transfer of wealth, while the Bitcoin treasury company bubble is heading towards its end.
When the puzzle falls apart
Although Strike, Strife, and Stride are part of this impressive company puzzle, their priority is above equity. The same applies to the convertible bonds, of which not all bonds are currently ‘profitable.’ Future free cash flow will always need to first meet the demands of these instrument holders before any remaining portion can be distributed to ordinary shareholders. This is clearly not an issue in times of economic prosperity, as the company's debt ratio is relatively low; but during economic downturns, the value of company assets can significantly decline while debt obligations remain — looming like a towering threat over any new creditors. Due to a phenomenon known as ‘Debt Overhang,’ any new creditors may hesitate to lend for the purpose of repaying other debt obligations. The initially intoxicating narratives and exaggerations may ultimately backfire on their creators.
All of this worsens due to the prolonged duration of the Bitcoin bear market. During this time, many distressed Bitcoin treasury companies will further exert selling pressure on assets. In other words, the more popular Strategy’s strategy becomes, the deeper the future Bitcoin crash will likely be, potentially completely destroying the equity value of most companies that adhere to this strategy until the last moment.
Summary: Michael Saylor loves Bitcoin. Like us, he prefers to have more Bitcoin rather than less. Therefore, it is extremely naïve to think that he would let the company’s management abandon an opportunity that is, by definition, arbitrage.
When the trading price of ordinary shares is above net asset value, the company can create risk-free profits for old shareholders by transferring wealth to buyers of newly issued shares. This behavior will continue, appearing in larger-scale ordinary share ATM issuance forms, accompanied by some new, obscure ‘innovative products,’ even though the outside world may protest or express dissatisfaction with the dilution of equity.
The evidence for this viewpoint is that my prediction from March of this year has been validated: less than a month and a half later, the company announced a new $21 billion ATM issuance. If Strategy does not take advantage of this arbitrage opportunity, all imitators will rush to capture this chance to increase their Bitcoin reserves in the same risk-free manner. In this frenzy of arbitrage opportunity expansion, the company will incur debts in various forms, increasing potential risks.
In the next round of Bitcoin bear markets, Strategy’s stock price will fall to — and ultimately below — the net asset value per share level, causing significant Bitcoin-denominated losses for investors who purchased stocks at a premium today. The best action for investors in Strategy today is to mimic the actions of the company and its insiders: sell the stock!
Bitcoin is no longer the main strategy of this company, nor of those emerging Bitcoin treasury companies; you are.